Just 45 days before India's date with its first Formula 1 race, the government is locked in a tussle with the organizers over customs duties that threatens to derail the mega event.

The sticking point is the Customs department's insistence that the organizers of the Formula 1 Airtel Indian Grand Prix pay duty upfront on all equipment coming into the country for the race. While no valuation has ever been done on F1 equipment, it is estimated that the duty on them could come to around Rs 600 crore or more.

The organizers, Jaypee Sports India (JPSI), have been asking for declaration of a custom bonded area, as is the practice worldwide, which would enable the F1 cargo to land and immediately be taken to the track where everything is assembled and dissembled, and then flown out of the country after the event. This is done on the premise that nothing is being imported or exported in or out of the country, thus avoiding custom duty.

For instance, during the Singapore Grand Prix, the country's customs department allows the temporary import of all cars and equipment for the main and support races. This enables the goods to be imported into Singapore without payment of duty or Goods & Services Tax (GST), with the condition that these goods would be were re-exported after the event.

However, the Indian government, bent on classifying Formula 1 as entertainment and not sport, has not extended any such help, the organizers say.As a result, JPSI might have to pay custom duty on the cargo that lands in India. With no known estimates of the F1 paddock, JPSI could be coughing up Rs 600 crore or more to allow the cargo to land in India for the race. After a deduction of 2%, the remaining amount will be returned to JPSI.

JPSI has over the past few months been writing letters and meeting government officials to get all approvals in place for the grand prix. In a letter dated Sept 7, 2011, signed by Shankar Lal, under secretary in the sports ministry, the government approved the Federation of Motor Sports Clubs of India's request to hold the Formula 1 Grand Prix in the country at "no cost to the government" but subject to certain conditions.

Even after issuing the letter, the government, is still mulling the issue. "No decision has been taken yet. It is being discussed," said a revenue department official. But sources in the finance ministry said under the rules F1 is not eligible for any exemption. Under sec 25 (2) of the Customs Act 1962, ad-hoc exemption is given to some security establishments and imports related to "national interest" only.

There is another interesting irony in the government's stance. Though it insists that F1 is not a sport, yet it recognizes the Federation of Motor Sports Clubs of India as a national sports federation.

More bizarrely, one of the conditions for approval to the F1 event, according to a sports ministry letter dated August 10, 2011, was that JPSI make a "contribution" of Rs 10 crore per annum to the National Sports Development Fund for the entire duration of the contract, that is, 2011 to 2015, extendable by another five years, and set up sports academies.